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Case Brief: Competition Commission Of India v/s State Of Mizoram

The complaint received by the Competition Commission of India was regarding a state lottery which was run by the state of Mizoram. The complaint highlighted instances of bid rigging collusive bidding and cartelization in the tender process for the appointment of selling agents and distributors for lotteries organised in the state of Mizoram. Mizoram invited expression of interest through respondents in consonance with the Mizoram lotteries (regulations) rules 2011.

The state lottery was conducted through both the conventional paper method and the online system as well. The government had specified a minimum rate which was Rs. 5,00,000 for bumper and 10,000 per draw for others. The bids accepted by the state of Mizoram quoted identical rates the table of the same was given in the judgment. The company/partnerships who were selected as distributors heart to furnish ₹5Cr as security, and the sum of ₹1,00,00,000 as advance payment. Based on these facts responded to number 4 in his complaint that it violates Section 3 and 4 red light section 19(1)(a). It was alleged that the bidders had cartelised and entered into an agreement.

There was an abuse of the dominant position by the state of Mizoram which was the position of administrator of state lotteries as it was expecting exorbitant sums of money towards security and advance payment. It was alleged to be unfair comma discriminatory and illegal which restricts the supply of service lotteries.

Basic Details:
Two cases were amalgamated in this case which was:

Civil Appeal No. 10820-10822 Of 2014 & Civil Appeal No. 1797 Of 2015
The parties of these cases are:
Appellant: Competition Commission Of India
Respondent 1: State of Mizoram
Respondent 2: Director Institutional Finance and State Lottery.
Respondent 3: Director General of CCI.
Respondent 4: The informant, filled out the complaint.
Respondent 5: private companies, Distributor of lottery tickets.
Respondent 6: Partnership firm.
Adjudicatory Body: Supreme Court

Procedural History:
Like other competition law cases, the case also started with CCI prima facie observation and an investigation by DG. The Procedural history of this case is: The information was filed by two private companies on 16.05.2012 to the CCI, alleging that four out of the five bids placed in the Expression of Interest (EOI) for appointment of lotteries selling agents/distributors had quoted identical rates.

The CCI, forming its prima facia opinion u/s 26(1) of the Competition Act believed there was a cartel, the reason behind this as stated by CCI, which were:
  1. Three bidders made identical bids of the minimum rate of Rs.10,000/- per draw for online lotteries;
  2. Only one party made a bid for the paper lottery segment, and they quoted the minimum rate for the same.
  3. Only one party made a bid for the bumper draw and quoted the minimum rate for the same.
The CCI then ordered the Director General (hereinafter referred to as the DG) to investigate the case. The DG in its report found evidence of bid-rigging and cartelization prohibited u/s 3(3) of the Competition Act, 2002. The report dated 14th January 2013 which was submitted on 17th January 2013 concluded that respondent number 5 and 6, along with M/s Teesta distributors and M/s E-cool gaming solutions Pvt limited hardcoded formed cartel and indulged in the practice of betraying which is a clear violation of the provision of section 3(1) read with Section 3(3) of the Competition Act.

The DG's observation against responses number one and 2 was that they ought to have been more vigilant in restricting unfair trade practices and their lapses have now raised suspicion of favouritism and collusion. The DG opined that it was a case of collusive bidding and respondent number 2 had an instrumental role, the case against the respondent number one under Section 4 of the Competition Act was dropped.

The complaint against the State of Mizoram for abuse of dominance u/s 4 of the Competition Act was dropped as it was noted in the CCI order that 'the State' is not covered under the meaning of either 'an enterprise' or 'a group', and therefore, provision of the Competition Act, 2002 would be inapplicable. After receiving the DG Report, CCI then send copies of the report to the parties so that they could file their reply, the state in unknown haste filed a writ petition.

The State under a misconception filed a writ petition before the Guwahati High Court to defend its officers � the Director IF&SL, whose conduct was not favorably commented on in the DG report. Respondent 6 filed another writ petition in the Guwahati High Court, praying for the quashing of the DG report and all proceedings pending before the CCI the HC taking cognizance in the matter ordered setting aside the DG report on the ground that as the subject of lottery comes under the purview of Res Extra Commercium, the ambit/ jurisdiction of the Competition Act, 2002 would be inapplicable.

  1. Whether the distribution of lotteries amounts to "Service".
  2. CCI's Jurisdiction to entertain issues relating to lotteries
Rule Of Law:
Definition of "Service":
The expression 'service' would mean service of any description which is made available to potential users and includes the provision of services in connection with the business of any industrial or commercial matter. In the aforesaid context, it was urged that the sale or distribution of lottery tickets to a prospective buyer on behalf of the State for consideration should be construed as "service".

The expansive definition of 'Service' under Section 2(u) of the Competition Act means "service of any description", which is to be made available to potential users. It was also argued that if the parliament wanted to exclude any service from the competition act then they would have specifically stated so under Section 2(h) or Section 54 of the Competition Act. Section 54 forms part of Chapter IX of the Competition Act under the general heading 'Miscellaneous' and it specifically empowers the Central Government to exempt from the application of the Act or any provision thereof and for such period as it may specify in such notification.

The High Court when passing the judgement, delivered the same in consonance with the arguments raised by the respondent which were:
The judgment of this Court in Union of India v. Martin Lotter Agencies Ltd. it was opined those lotteries, being akin to gambling activities, came under the purview of the doctrine of res extra commercium. The Competition Act was opined, applied to legitimate trade and goods, and was promulgated to ensure competition in markets that are res commercium. Thus, lottery activity being like res extra commercium could not be covered by the Competition Act and consequently, the CCI did not have jurisdiction.

The CCI in response to this allegation raised that as lotteries are a regulated commodity under the Regulation Act, the CCI would continue to have jurisdiction over the competition law aspect of a such regulated commodity. On this behalf, he referred to the judgment of this Court in CCI v. Bharti Airtel , which examined the contours of the Telecom Regulatory Authority of India Act, 1997 (hereinafter referred to as the 'TRAI Act') and the Competition Act in the context of the exercise of power by the Telecom Regulatory Authority of India (for short 'TRAI') and the CCI. It was observed in that context that the Competition Act frowns on anti-competitive agreements.

The appellant also raised the point that a petition under Article 226/227 of the Constitution of India as an order passed under Section 26(1) of the Competition Act was like an administrative direction. There were no adverse civil consequences. The proceedings were akin to a show cause notice and even the DG's report did not amount to a final decision.

The Supreme Court, relying upon its judgment in Competition Commission of India v. Bharti Airtel, quashed the order of the Hon'ble Guwahati High Court and noted that 'any agreement contravening the provisions of the Competition Act, 2002 would necessarily come under the ambit of the CCI'. The Apex court observed that lotteries may be a regulated commodity and may even be res extra commercium, however, that would not take away the aspect of something which is anti-competition in the context of the business related to lotteries.

Further, on the question that whether the business of lottery being res extra commercium comes under the ambit of 'service' u/s 2(u) of the Competition Act, 2002, the Supreme Court noted the expansive definition of 'Service' which means: "Service of any description, which is to be available to potential users". The Court observed that 'the lottery business can continue to be regulated by the Regulation Act. However, if in the tendering process there is an element of anti-competition which would require investigation by the CCI, that cannot be prevented under the pretext of the lottery business being res extra commercium, more so when the State Government decides to deal in lotteries."

With aforesaid observations, the Apex Court allowed the continuation of the proceedings before the CCI and noted that the intervention by the High Court was extremely premature and ought to have waited for the CCI's conclusions. It was noted that even if the contracts in the matter pertaining to cartelization and bid-rigging have ended, the continuation of the CCI proceedings would have a future impact on the market.

Finding the conduct of the State "very non-appreciable" and intervention by the High Court "extremely premature", the Bench stated that the State ought to have cooperated with the CCI and the High Court ought to have waited for the CCI to conclude but on the other hand what had happened was that the CCI proceedings had been brought to a standstill while the High Court opined based on some aspects which may or may not arise.

The Bench remarked, A simple aspect of anti-competitive practices and cartelisation had got dragged on for almost ten years in what appears to be a misapplication by the High Court of the interplay of the two Acts, i.e., the Competition Act and the Regulation Act.

Hence, holding that the proceedings before the CCI ought to have been permitted to conclude with the right available to the affected parties to avail of the appellate remedy under Section 538 of the Competition Act, the Bench set aside the impugned judgment and directed to close the proceedings in the case filed by the State while the proceedings against the other parties were directed to continue. In short, the court held that:
  • CCI contended that it is concerned about potential bid rigging in the tender process, cited the case of CCI v Bharti Airtel to highlight that CCI can find out whether a particular agreement has an appreciable adverse effect and definition of services should be read with the widest amplitude.
  • Respondent No. 1 sought deletion from the array of parties as the CCI opined that there was no fault on its part and sought to aid. Respondent No.5 argued that the lottery does not fall under the defection of goods and lottery business is res extra commercium.
  • Court opined that based on the report of CCI and DG not to proceed against Respondent No.1, the State could have closed the proceedings at that stage itself instead of approaching the High Court.
  • The definition of 'Service 'under the Act means "service of any description", which is to be made available to potential users and there was no need for the Hon'ble High Court to have proceeded in the matter was highlighted by the Court.
  • In the event the tendering process has an anti-competition element, CCI can investigate the same and affected parties can avail the remedy of appeal under Section 53B of the Competition Act.
The Hon'ble Supreme Court allowed the appeal.

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